Obsolete? My team has an onboard document that spells out lines that needed to be add to host file so they can access internal resources. These are machines directly bought/rented and maintained by the team, so we prefer to use host files instead of going through the company DNS, which is maintained by an entirely different team.
The person you replied to said mostly-obsolete. They were speaking in the same context as the earlier commenter claiming it's a normal practice because everyone used to have to update their hosts files all the time before DNS existed at all.
Your shadow IT example is perfectly valid, and also isn't a 1:1 comparison with a company doing it automatically for a much larger number of external users.